Since our membership of the European Union, the role of customs revenue in the budget has decreased significantly. But not only is this a big change, it is also the fact that we know much less about EU customs revenues. There are no public sources of data on countries, what goods are brought into the territory of the Community and customs prices.
The situation is further complicated by the fact that the EU territories and customs borders do not coincide: in connection with Brexit, you can read a lot of news that Northern Ireland will remain part of the common customs territory, although the United Kingdom will no longer be. Member of the European Union. Furthermore, it is not unprecedented to find customs borders within countries. The two British territories of Cyprus, Akrotiri and Dhekelia, remain part of the customs union, as does Monaco.
To further complicate the situation, Turkey, Andorra and San Marino, although not part of the Customs Union, form a single duty-free zone with the EU Customs Union through bilateral agreements. In addition, there are territories that are part of an EU Member State, but are not members of the Customs Union. This is the case in the city of Bösingen am Hocherrhein, which belongs to Switzerland as a German enclave for customs purposes. The German Heligoland in the North Sea, the Italian Livigno located in Switzerland, and the Spanish Ceuta and Melilla located in Morocco are completely exempt from VAT.
The money that flows in this way is very important for the EU, as customs revenues made up a clear portion of its revenues – 13 percent in 2019 and 11 percent in 2020. 80% of customs revenues go back to the EU, while the remaining 20% goes back To the countries that collect it. Although this is an important line item in the EU budget, the total customs revenue withheld for member states does not exceed 0.03% of GDP.
Hungary is lagging behind in customs
However, there are significant differences between individual Member States. The chart below shows the role of tariffs in terms of GDP. For customs revenue, we took into account the total customs duties paid. As we wrote above, the largest part of this amount remains in the EU budget, while a smaller part remains in the budget of member states.
Customs revenues measured in relation to Hungary’s economic performance lag behind the EU average by a tenth.
However, Hungary’s foreign trade is one of the largest in relation to GDP in the world, so it may be misleading to measure tariffs against economic performance. The majority of imports from EU countries can be linked to EU duty-free partners. That’s why we examined how much tariff revenue each country collects in relation to its dutiable imports.
This comparison gives the closest possible picture of which countries can encourage more traders to undertake this activity through better customs services, and which countries are best avoided.
Hungary is the seventh worst country in this report, with customs revenues a third below the EU average from imported products subject to customs duties. On the list, Ireland and Luxembourg, which lead tax evasion and tax optimization, are the driving forces. Presumably, the problem with them is not the quality of management. Countries that help multinational corporations with discounts on all potential public burden payments are more likely to apply a positive approach to companies when imposing tariffs.
Ireland’s case is also interesting because its customs revenues are low, and although it has a high turnover of goods by sea, most dutiable products arrive by ship, especially from China. Therefore, it makes sense that the goods are already cleared at the ports and transported to the interior of the continent. It is therefore understandable for landlocked countries to have a lower customs revenue ratio.
In our region, Austria, Estonia, Slovakia and Romania, with their difficult and bureaucratic administrations, still lag behind Hungary. The Czech Republic can collect nearly a third more in tariffs than Hungary on dutiable imports, even without coastal ports. Countries with seaports, such as Greece, Spain, and Portugal, collect the most tariffs on dutiable imports.
If the rate of customs duties paid domestically reaches the EU average in Hungary as well, the Hungarian state could generate an additional income of 7.6 billion Hungarian forints annually.
Based on 2020 data. The EU data is supported by the annual net asset value report, according to which the tax office recognized HUF 17 billion for customs collection costs in 2020.
The Chinese avoid customs here
The European Union does not maintain a unified database on customs revenues, so it is not possible to know where and how much customs duties have been paid on goods imported from a particular country, or what amount and extent of customs duties are imposed on certain types of goods in which countries.
The lack of data at this level greatly aids the activities of those who do business and want to avoid customs at the lowest possible cost. It will be interesting not only for those interested, but also for customs offices, to be able to know where and how much goods are being imported. It would be particularly useful for the importer and sender to be known as well, as this may help filter out potential violations within seconds.
We can only estimate the amount of customs duties paid, mostly from trade databases. In these, you can find out how much imports from a particular country were duty-free and for which this cost was paid. The government has repeatedly stated that our country wants to become China’s gateway to the European Union – as has almost every other EU country. The tariffs on Chinese goods arose as an additional revenue opportunity in connection with the railway line between Budapest and Belgrade.
However, our country does not fare well in terms of tariffs on Chinese goods: 62% of products coming from production centers in the Far East paid no tariffs at all, while the EU average is more than a quarter lower.
Only three countries were able to import more duty-free goods from China than our country.
The Chinese case highlights that WTO members, such as China and the European Union, are now able to access more and more global markets without tariffs. Therefore, customs duties cannot play a major role in the return on investments.
The fact that the proportion of duty-free Chinese imports into Hungary is so high poses a problem, even though the proportion of Chinese goods among products subject to import in Hungary is one of the highest in the European Union. As can be seen from 2020 data, 32% of the products that cleared customs in the European Union were Chinese, while in Hungary the percentage was 41%.
However, the size of the tariffs is not large today, because, as our calculations show, it was 5.3 percent compared to the value of dutiable imports in the Union as a whole between 2010 and 2020. In the past decade, the decline has also been significant and persistent: in 2010 it reached 5.5 percent, and in 2020 it reached only 4.8 percent. This is good news for free trade, but a hardship for the EU budget.
Hungary’s budget data also shows how quickly customs can be reduced as a share of GDP and budget revenues. In 1995, even at these prices, customs revenues amounted to 250 billion Hungarian forints, representing a tenth of tax revenues. In 2020, it amounted to 81 billion Hungarian forints, but only a fifth of it remained in our country, and the rest increased EU income. Therefore, the share allocated to the local budget did not exceed 0.1 percent of tax revenues.
The global spread of free trade has now reduced the role of customs to a very small role in developed countries, but the growing trade has been able to create greater prosperity than the lost income. How fairly this is distributed is another question.
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